Rules of Attraction: The MAGNET Stock Selection Process

Most investment strategies, especially fundamental stock screens, typically have some sort of style “bias”—leaning more toward a value- or growth-oriented approach. However, Jordan Kimmel blends value, growth and momentum investing styles into a singular approach, which he termed the MAGNET Stock Selection Process.

The Basics: What Is the Over-the-Counter Market?

“Over-the-counter,” or OTC, is a term loosely applied to securities that aren’t listed on an organized exchange—such as the New York, American, Midwest, Boston, Pacific or Philadelphia exchange. OTC securities are traded through at least two, but often numerous “market makers” who maintain bids and offers for the securities they trade. Securities that trade on a listed exchange are quoted by a solo “specialist” who is charged with maintaining orderly trading in a security.

Maximizing the potential for reward is about identifying attractive investments and prudently managing your portfolio. Reducing risk is about limiting behavioral errors and avoiding investments with a greater likelihood of decreasing in price. AAII Journal Editor Charles Rotblut gives you actionable strategies for striking a prosperous balance between reward and risk.

AAII Sentiment Survey: Unusually High Level of Pessimism

Bearish sentiment rebounded to an unusually high level, while bullish sentiment remained at below-average levels in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 2.5 percentage points to 28.0%. This is the ninth consecutive week that optimism has been below its historical average of 39%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged, declined 0.9% to 30.0%. This is the third consecutive week that neutral sentiment has been slightly below its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 3.4 percentage points to 42.0%. This is the seventh time in the past eight weeks that pessimism has been above its historical average of 30%.

The spread between bullish and bearish sentiment, the bull-bear spread, widened to -14 percentage points. This is the third negative double-digit spread in the past four weeks.

Bearish sentiment rebounded back to an unusually high level. This is the third time in the past four weeks, and the fourth out of the last eight, that pessimism has exceeded 41%. Bullish sentiment, on the other hand, is right at the separating point between the typical range of readings and a level that is unusually low.

Individual investors remain concerned about the European sovereign debt crisis, the pace of U.S. economic growth, and the recent downward volatility in stock prices. Underlying this are fears that a repeat of last summer’s correction could occur this year. Also playing a role in hurting sentiment is the lack of positive catalysts.

This week’s special question asked AAII members what they thought about the Facebook (FB) initial public offering. Many respondents said the IPO was overvalued, overhyped or otherwise risky. Some said they were not surprised by the poor performance of the stock, and thought the market was acting in an efficient manner. A few said they were surprised about how the IPO was handled with some going as far as to call the offering a “fiasco”. Others were more critical and opined that the investment industry puts individual investors at disadvantage, especially relative to institutional investors.

Here is a sampling of the responses:

“I felt it was overhyped from the beginning.”

“There was adequate information regarding Facebook to make an investor wary of the IPO’s outcome.

“It fulfilled my expectations in every respect. I didn’t see Warren Buffett investing in this turkey.”

“The market worked the way it should when presented with a problem offering.”

“It was a fiasco that can dampen individual investors’ enthusiasm for IPOs in particular, and the stock market in general.”

“It gives further credence to the theory that the market is rigged toward the big-money investors and against regular people.”

This week’s AAII Sentiment Survey Results:

Bullish: 28.0%, down 2.5 percentage points

Neutral: 30.0%, down 0.9 percentage points

Bearish: 42.0%. up 3.4 percentage points

Historical averages:

Bullish: 39%

Neutral: 31%

Bearish: 30%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat, or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.) The survey and its results are available online at: http://www.aaii.com/sentimentsurvey?a=blog

Collecting Basic Data on a Stock

The Valuation Worksheet provides a systematic approach to gathering information needed for the valuations. Clearly, the information sources play a critical role in the analysis. Here, we take a closer look at sources of information and some of the problems and differences you may encounter when using them.

Sell of the Week 5/30/2012

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Tiffany & Co. (TIF) is his “Sell of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Where Credit Is Due: A Look at the Ratings

There are many factors that individuals must consider when making investments in fixed-income securities. Current bond yields, current bond prices, and current as well as future interest rates all may have a big impact on the return of a fixed-income investment.

One other factor investors need to evaluate is the credit quality of the issuer and the particular bond. Individuals investing in fixed-income securities typically have two major concerns…

AAII is a nonprofit organization that arms individual investors with the education and tools they need to build wealth. From stock investing to financial planning and retirement funding, AAII covers all your needs.